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Anettt [7]
3 years ago
14

The risk-free rate of return is 5 percent and the market risk premium is 12 percent. What is the expected rate of return on a st

ock with a beta of 1.4
Business
1 answer:
Kazeer [188]3 years ago
4 0

Answer:

Expected rate of return= 21.8 %

Explanation:

<em>The capital asset pricing model is a risk-based model for estimating the return on a stock.. Here, the return on equity is dependent on the level of reaction of the the equity to changes in the return on a market portfolio. These changes are captured as systematic risk. Systematic risks are those which affect all economic actors in the market, they include factors like changes in interest rate, inflation, etc. The magnitude by which a stock is affected by systematic risk is measured by beta. </em>

Under CAPM,

E(r)= Rf + β×(Rm-Rf)

E(r)- expected return- ?

Rf-risk-free rate- 5%

β= Beta - 1.4

(Rm-Rf) - 12

E(r) = 5% + 1.4× (12%)= 21.8 %

Expected rate of return= 21.8 %

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Barton Steel is considering the purchase of a new steel mill. The first option is a top of the line high efficiency mill with a
iris [78.8K]

Answer:

The first project should be chosen

Explanation:

Net present value is the present value of after-tax cash flows from an investment less the amount invested.

NPV can be calculated using a financial calculator

To determine which project to accept, calculate the NPV for the two projects

The first option

Cash flow in year 0 = $-25 million

Cash flow each year for year 1 - 5 = $10 million

Cash flow in year 6 =  $10 million - $15 million = $-5 million

I = 9.5

NPV = $10.50 million

Option two

Cash flow in year 0 = $-12 million

Cash flow each year for year 1 - 6 = $4 million

I = 9.5

NPV = $5.68 million

The first option should be chosen because the NPV of the first option yields the higher NPV

To find the NPV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute

6 0
3 years ago
(Ignore income taxes in this problem.) If you wanted to withdraw $12,000 from a bank account at the end of each of the next 20 y
prisoha [69]

Answer:

The money should be invested in bank = $137,639.05

Explanation:

Given  annually withdrawal money (annuity ) = $12000

Number of years (n ) = 20 years

Interest rate  = 6 percent.

Since a person withdraw money annually for next 20 years with 6 percent interest rate. Now we have to calculate the amount that have been invested in the account today. So below is the calculation for invested money.  

\text{Present value of annuity} = \frac{Annuity [1-(1 + r)^{-n}]}{rate} \\= \frac{12000 [1-(1 + 0.06)^{-20}]}{0.06} \\=12000 \times 11.46992122 \\=137,639.05

4 0
3 years ago
In the Keynesian model, a $1 billion increase in autonomous consumption leads to ______ in equilibrium output.
egoroff_w [7]

Answer: A greater than $1 billion increase

Explanation: According to the Keynesian Model which says that government should increase demand to boost growth.

Keynesian believes that Government spending on infrastructure, unemployment benefits, and education will increase consumer demand. They also believe that consumer demand is the primary driving force in an economy.

4 0
3 years ago
n a company's merit pay program, an individual's compa-ratio represents the individual's pay relative to company's average pay f
Mademuasel [1]

Answer:

The individual's pay relative to company's average pay for that position.

Explanation: Compa-ratio is a term used by Recruitment managers in organisations to determine what a new recruit is likely going to be paid.

This ratio compares the person's position to those of others with an industry and know the average payment to offer the person. For example,a person with a Compa-ratio of 0.5 means the people is earning 50% less the average salary for his or her position.

8 0
3 years ago
Has anyone done this<br> Please help
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Answer:

Explanation:

you have to do t with someone to understand it

3 0
3 years ago
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